If our schools aren't going to teach teenagers about money, the responsibility rests firmly on the shoulders of parents.
There are financial products out there aimed at youngsters including the new MeCard prepaid card for teens from MasterCard, but are they a help or a hindrance to concerned parents?
Prepaid cards are often seen as a handy alternative to travellers' cheques for anyone wanting to spend abroad. The major benefits are that you cannot spend more money that you have preloaded on to the card. This is not only beneficial in terms of budgeting, but also in terms of card fraud. As a parent, it means that your child can access money without being able to run up a huge debt or put your bank account at risk.
"Cards aimed at children will include limitations designed to stop the child getting into any sort of debt but at the same time allowing them to experience controlling their account," says Sylvia Waycot from Moneyfacts.co.uk. "Some cards may offer limitations on the size of transactions or only allow cash withdrawals. If the primary cardholder is the parent then they could also have access to the spending information to see where the card has been used."
The MeCard for teens is the latest launch in the prepaid market allowing adults to use a "parent" MasterCard (on which they can keep up to £3,000) to set a monthly budget for their kids. They can transfer money (a maximum of £500) for emergencies by keeping a running balance on their own card so that cash can be moved instantly.
"Prepaid cards provide the perfect balance giving teenagers complete independence when making purchases on and off line, with no risk of overspending, while their parents retain the ability to monitor spending and top up remotely when required," says Warren Tayler, the chairman of MeCard.
Top-ups to the parent card can be made online at the MeCard website or at a PayPoint terminal in your local shop, taking about two hours to show up on the account. The MeCard is accepted anywhere displaying a MasterCard mark and at cash machines in the UK or abroad. Although the child is able to view balances and shop online and top up their pay-as-you-go phone with the account, the primary liability will always be with the parent.
The big problem with any prepaid card is that there are myriad charges to watch out for including card application fees, monthly service charges, top-up fees, ATM withdrawal fees, transaction charges and renewal costs to replace the card once it has expired, or if you lose it. There may even be an inactivity charge if the card is left unused, so do check and cancel the card if you don't want it any more.
"Watch out for the fees," says Andrew Hagger from Moneynet.co.uk. "It costs £9.99 to take out a MeCard and a renewal fee of £9.99 a year. Withdrawals from an ATM are charged at 75p each and an SMS balance request is 15p. To load the card is free by BACS but £1 by debit card. There is also a £10 fee to close the account."
You should also find out if there is a minimum top-up – it may be more difficult for your teenager to budget carefully if they are forced to load at least £50 each time. Another crucial issue is that prepaid cards do not benefit from protection under Section 75 of the Consumer Credit Act, unlike a credit card, which allows you to claim against your credit card company if something you buy (even in part payment) with your card is faulty.
The MeCard aside, there is only a small selection of prepaid cards aimed specifically at teenagers. Several of the best cards are no longer available, including the Extreme Cred Maestro, which had no charges for spending in the UK (2 per cent outside of the UK), and the very popular O2 Cash Manager and Load and Go cards have also been closed this month although new cards powered by NatWest are expected soon.
From what is available, the Splash Plastic Maestro card is open to teens and offers free transfers from your bank account or Post Office and top-up charges at 3 per cent. However, there is an additional £5 card issue fee, an annual fee of £4.95, a £1.50 charge for ATM withdrawals and, more importantly, a 2.5 per cent transaction fee on spending.
A better option may be the Virgin Pay As You Go Visa card with free top-ups with a debit card (instantly) and the Post Office (overnight). But the sting is in the usage charges: a card issue fee of £9.95, 2.95 per cent UK transaction fees, 2.95 per cent ATM withdrawal charge, although there is no annual fee to worry about.
The Blue Sky Pay-As-You-Go (for 13-18-year-olds) charges £9.99 initially with no monthly or annual fee but levies a 1.5 per cent ATM charge, a 66p transaction fee and charges 99p for bank transfers, or, if you think it is worthwhile, you can pay £4.45 per month to get free transactions, free bank transfers (£1.99 at Post Office) and 99p ATM withdrawals.
Beyond this, parents can take out their own prepaid card and add their child as an additional cardholder. For example, Cashplus Gold and Clearcash pay-as-you-go cards allow children over 13 to be added, but once again, charges vary widely so you must compare loading, transaction and usage fees carefully.
Caroline and George Maxwell, GP from Cirencester
When George, 13, went away to boarding school, Caroline, 45, was worried about how he would manage with money.
"Carrying cash isn't a good idea from a security point of view. It is also easily lost and a lot of the purchases his age group make are online," she says.
Caroline decided the MeCard prepaid was the ideal way to give George independence and help him to learn how to manage money without the risk of overspending. She was persuaded by the flat charge for the card and, although there is a charge for drawing out cash of 75p, purchases in shops and online are free.
"Once the account was set up I knew there wouldn't be any surprises," she says. "The ability to load money remotely and instantly is great in an emergency and saves me having to deposit cash at a bank. I can also see how much he is spending and know whether he is likely to run out."